Introduction to International Economics

Prof. Barbara Luppi

SAMPLE FINAL EXAM
STUDENT ID:
SURNAME:
NAME:

QUESTION 1
During a year, an economy records the following National Account Data:

Private Consumption 24.000

Government Purchases 6.000
Investments 2.500
Exports 500
Imports 1.500
Taxes 12.000

:
a) Calculate the GDP, the Current Account Balance and the Private Saving
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
b) Verify whether the identity “National Saving = Investment + Current Account
Balance” is satisfied.
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
c) Explain the difference between GDP and GNP and calculate the GNP given the

1
 data provided in this exercise.

………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
QUESTION 2
During a year, an economy records the following Balance of Payments Account data:
Jeep cars purchased by 90.000
German citizens
Purchases of Italian food 120.000
by US citizens
Purchases of FIAT shares by US 140.000
domestic citizens
Purchases of US government bonds by 160.000
Chinese citizens

a) Calculate the Current Account Balance and the Financial Account Balance
…………………………………………………………………………………………
…..……………………………………………………………………………………
………..………………………………………………………………………………
……………..…………………………………………………………………………
…………………..……………………………………………………………………
………………………..………………………………………………………………
……………………………...…………………………………………………………
…………………………………...……………………………………………………
………………………………………...………………………………………………
……………………………………………...................................................................
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………

b) Specify whether in that year the official reserves change and how they change

2
……………………………………………………………………………………………..
……………………………………………………………………………………………..
……………………………………………………………………………………………..
……………………………………………………………………………………………..
……………………………………………………………………………………………..
……………………………………………………………………………………………...
……………………………………………………………………………………………...
……………………………………………………………………………………………...
……………………………………………………………………………………………...
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………

c) Define the net foreign wealth of the economy and whether it is decreasing and why
……………………………………………………………………………………………..
……………………………………………………………………………………………..
……………………………………………………………………………………………..
……………………………………………………………………………………………..
……………………………………………………………………………………………..
……………………………………………………………………………………………...
……………………………………………………………………………………………...
……………………………………………………………………………………………...
……………………………………………………………………………………………...
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………

QUESTION 3
a) Suppose a euro deposit with a 5% annual interest rate and the expected exchange rate
Ee$ / € = 1.2. Calculate the dollar rate of return for such a deposit when the current
exchange rate is E$/ € = 1.15.
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
b) The annual interest rate on US deposit is 6%. Should investors select US or euro
deposit?

3
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
c) Calculate for which value of the current exchange rate the interest rate parity holds.
………………………………………………………………………………………………
...……………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
d) Suppose the interest parity between euro and dollar deposits holds. Examine the effects
of a short run expansionary monetary policy in the Euro Area (R€, R$, E$ /€ ).
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………